DP16858 Optimal Information Disclosure in Auctions

Author(s): Dirk Bergemann, Tibor Heumann, Stephen Morris, Constantine Sorokin, Eyal Winter
Publication Date: January 2022
Keyword(s): auctions, Conflation, Digital Advertising, information design, information disclosure, Second-price auctions
JEL(s): D44, D47, D83, D84
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16858

We characterize the revenue-maximizing information structure in the second price auction. The seller faces a classic economic trade-off: providing more information improves the efficiency of the allocation but also creates higher information rents for bidders. The information disclosure policy that maximizes the revenue of the seller is to fully reveal low values (where competition will be high) but to pool high values (where competition will be low). The size of the pool is determined by a critical quantile that is independent of the distribution of values and only dependent on the number of bidders. We discuss how this policy provides a rationale for conflation in digital advertising.